The Inversion Worth Worrying About

In a December article for Bloomberg, columnist Nir Kaissar argues that, albeit troubling, all the hype about a potential yield curve inversion is “overdone, at least so far.” Instead, he asserts, investors should be watching the difference between the earnings yield on stocks and the yield on cash, because, “when the earnings yield has dipped below the cash yield in the past, stocks were in for a rough ride.” Kaissar cites the first such recorded… Read More

Flat Yield Curve Inverted in December

An article published in Bloomberg early last month reported that “a section of the U.S. Treasuries yield curve just inverted for the first time in more than a decade,” with the spread between short-term and long-term instruments dipping to negative 1.4 basis points. The development, according to the article, “could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching.” The five-year… Read More

Should the Coming Yield Curve Inversion Frighten Investors?

A recent article in Forbes discusses the growing buzz about an impending yield curve inversion and the repercussions for the economy and stock market. “Inverted yield curves have successfully warned about each of the seven recessions over the past 50 years,” the article reports, “which is why investors keep an eye out for them.” When an inversion takes place (the difference between short- and long-term yields falls below zero), the article notes, it “warns that… Read More

Stock Investors: Don’t Fear Flattening Yield Curve

An article in last month’s Barron’s offer six reasons why equity investors should not be put off by a flattening yield curve (the difference between the yields on the 10-year and two-year Treasuries), which it says, “has a long history as a recession indicator with a near-perfect record in the past.” The yield curve may not be signaling a weakening U.S. economy.Short-term rates, the article explains, are primarily driven by Fed policy, which reflects domestic economic strength.… Read More

Signals from the U.S. Yield Curve

The difference between the two-and ten-year Treasury yield is the narrowest since 2007, a signal that “the market thinks the Federal Reserve’s interest-rate increases, which are driving short-term yields higher, will not only slow inflation, but could also tip the economy into a recession.” This according to a recent Bloomberg article. The article outlines several reasons “to be worried about the economy:” Trade wars: Tariffs, the article says, “will lead to some self-imposed inflation, a… Read More

Powerful Recession Signal Getting Wall Street’s Attention

The yield curve—the difference between short-term and long-term government bond yields—is “perilously close to predicting a recession—something it has done before with surprising accuracy,” says a recent article in The New York Times. The article explains that in a healthy economy, the rate on longer-term bonds will typically be higher than that on short-term notes. “The extra interest is to compensate, in part, for the risk that strong economic growth could set off a broad… Read More

Signs that a Bear Market May Be Coming

A recent article in Barron’s reports that while a flattening yield curve is “no reason to bail out of stocks,” bond yields could provide investors with “a sell signal in the years ahead.” A flattening of the yield curve occurs when short-term bond yields rise faster than long-term yields, which can happen, the article explains, if investors “think the Fed is making a mistake” in hiking interest rates and may have to reverse its course.… Read More

Inverted Yield Curve as Recession Predictor

Whether or not the yield curve on U.S. Treasuries is inverted can be a useful tool in forecasting the next recession, according to a recent Barron’s article. The inverted yield curve has predicted three of the past three recessions, the article says, which “helps lend confidence to its predictive powers.” Typically, long-term interest rates are higher than short-term rates, which results in an upward-sloping yield curve. But an inverted curve occurs when short-term rates are… Read More

Sonders: Yield Curve Flattening Not Cause for Worry

While some investors have been concerned about the rapidly flattening yield curve, Charles Schwab Chief Investment Strategist Liz Ann Sonders says history shows such a trend isn’t cause for alarm. A flattening yield curve means lower profits for banks, which can borrow at lower short-term interest rates and invest at the higher long-term rates. “That said, it may be surprising to learn that, historically, a flattening yield curve has not been a problem for the… Read More